A guide to health care reform

Long-term Effects of Managed Care

Managed care (MC) plans have been introduced to curb the ever increasing health care costs. Many previous studies on effectiveness lacked a long-term perspective; hence, the sustainability of (possible) savings remains unclear. Moreover, because of their incentives, MC plans are susceptible to under-provision of care. Most of these possibly negative effects can only be observed in the long-term. This paper analyzes the long-term effects of MC plans on cost savings, mortality, and the use of service, using administrative data from a large Swiss health insurer. The identification is based on a propensity-score matching approach, where individuals who enter an MC plan are compared over 10 years to individuals who remain in a standard fee-for-service plan. Cost savings are substantial and sustainable, and the mortality rate is lower in MC plans. Cost savings are driven by fewer consultations and fewer days in hospital care, although the probability of visiting a provider at least once per year is similar or even higher for persons in MC plans. Copyright © 2016 John Wiley & Sons, Ltd.

Innovation in hospitals: a survey of the literature

The literature on innovation in hospitals is relatively extensive and varied. The purpose of this article is to conduct a critical survey, and in particular to highlight the functional and occupational bias that characterises it, whereby the sole object of innovation is medical care, and that innovation is essentially the work of doctors. In order to achieve this objective, four different (complementary or competing) concepts of the hospital are considered. In the first, the hospital is seen in terms of its production function, in the second, as a set of technical capacities, in the third, as an information system, and in the fourth, as a service provider and a hub in a wider system of healthcare. In the latter approach, hospitals are regarded as combinative providers of diverse and dynamic services, able to go beyond their own institutional boundaries by becoming part of larger networks of healthcare provision, which are themselves diverse and dynamic. This approach makes it possible to extend the model of hospital innovation to incorporate new forms of innovation and new actors in the innovation process, in accordance with the Schumpeterian tradition of openness.

How much risk pooling is there in the individual insurance market?

OBJECTIVE

To examine how much pooling of risks occurs among potential purchasers in the individual market, how much pooling occurs among those who purchase coverage, and whether there is greater pooling among longer-term enrollees.

DATA SOURCES

The data are administrative records for enrollees in individual insurance plans in California in 2001, and from a survey of Californians enrolled in the individual insurance market and the uninsured.

STUDY DESIGN

Logit models were estimated for 5 health outcome measures to compare the insured and uninsured after adjusting for other factors that affect insurance status and health. Multivariate models were also estimated to explore the relationship between health and three measures of pooling in the market: plan type, pricing tier, and the actuarially adjusted premium paid by the enrollee.

PRINCIPAL FINDINGS

Those who purchase individual health insurance are in better health than those who remain uninsured. On the other hand, a large share of people with health problems does obtain individual insurance. The distribution of subscribers across plan type and pricing tier varies with their health status. Those in poor health are less likely to purchase low benefit plans. There is less separation of risks for those who become sick after enrollment based on the measure of pricing tier. The distribution of subscribers across plan type for those who have health problems at enrollment and those who become sick differs, but so does the distribution of those who become sick and those who remain healthy.

CONCLUSIONS

Despite small differences among the healthy and sick, our results support the conclusion that there is considerable risk pooling in the individual market. To some extent, this pooling occurs because underwriting happens at the time people enroll and there is greater pooling among those who become sick than those who enroll sick. Our results however suggest that health savings accounts may further fragment the market.

Is the United States an outlier in health care and health outcomes? A preliminary analysis

U.S. health care is often seen as an outlier, with high costs and only middling outcomes. This view implies a household production function for health, with both health care and lifestyle serving as inputs. Building on earlier work by Miller and Frech (2004), we make this argument explicit by estimating a production function from augmented OECD data. This allows us to determine whether the U.S. is literally an outlier; which turns on whether the United States is very far off the production surface. We find that the Unites States is somewhat less productive than the average OECD country, but that a substantial part of the observed difference results from poor lifestyle choices, particularly obesity.

Do competition and managed care improve quality?

In recent years, the US health care industry has experienced a rapid growth of managed care, formation of networks, and an integration of hospitals. This paper provides new insights about the quality consequences of this dynamic in US hospital markets. I empirically investigate the impact of managed care and hospital competition on quality using in-hospital complications as quality measures. I use random and fixed effects, and instrumental variable fixed effect models using hospital panel data from up to 16 states in the 1992-1997 period. The paper has two important findings: First, higher managed care penetration increases the quality, when inappropriate utilization, wound infections and adverse/iatrogenic complications are used as quality indicators. For other complication categories, coefficient estimates are statistically insignificant. These findings do not support the straightforward view that increases in managed care penetration are associated with decreases in quality. Second, both higher hospital market share and market concentration are associated with lower quality of care. Hospital mergers have undesirable quality consequences. Appropriate antitrust policies towards mergers should consider not only price and cost but also quality impacts.

Costs of occupational COPD and asthma

OBJECTIVE

To estimate the number of annual deaths, as well as the direct and indirect costs of occupational COPD and asthma, in the United States in 1996.

DESIGN

Aggregation and analysis of national data sets collected by the National Center for Health Statistics, the Health Care Financing Administration, and other government bureaus and private firms. To assess mortality, we reviewed data from national surveys and applied a population attributable risk (PAR) of 15% for both asthma and COPD. We use a lower age limit of 35 years for occupational COPD and 20 years for occupational asthma. To calculate costs, we use the human capital method that decomposes costs into direct categories, such as medical expenses, as well as indirect categories, such as lost earnings and lost home production. We calculated proportionately adjusted costs for other plausible PARs.

RESULTS

The 15% PARs result in costs of $5.0 billion for COPD and $1.6 billion for asthma. For COPD, 56% of costs were direct and 44% were indirect; for asthma, 74% were direct and 26% indirect. These estimates are conservative since we ignored costs associated with pain and suffering as well as the value of care rendered by family members. The proportionately adjusted costs for 10 to 20% PARs are $3.3 to $6.6 billion for COPD and $1.1 to $2.1 billion for asthma.

CONCLUSIONS

The estimated $6.6 billion cost of occupational COPD and asthma in 1996 is likely to rise with the increasing prevalence of these diseases and warrants preventive intervention.

Costs of occupational injuries and illnesses in California

OBJECTIVES

The purpose of this study was to estimate the annual incidence, the mortality, and the direct and indirect costs associated with occupational injuries and illnesses in California in 1992. To achieve this, we performed aggregation and analysis of national and California data sets collected by the U.S. Bureau of Labor Statistics, California Workers' Compensation Insurance Rating Bureau, California Division of Industrial Relations, the National Center for Health Statistics, and the U.S. Health Care Financing Administration.

METHODS

To assess incidence of and mortality from occupational injuries and illnesses, we reviewed data from state and national surveys and applied an attributable risk proportion method. To assess costs, we used the cost-of-illness, human capital, method that decomposes costs into direct categories such as medical expenses and insurance administration expenses as well as indirect categories such as lost earnings, lost home production, and lost fringe benefits. Some cost estimates were drawn from California data, whereas others were drawn from a national study but were adjusted to reflect California's differences. Cost estimates for injuries were calculated by multiplying average costs by the number of injuries. For the majority of diseases, cost estimates relied on the attributable risk proportion method.

RESULTS

Approximately 660 job-related deaths from injury, 1.645 million nonfatal injuries, 7,079 deaths from diseases, and 0.133 million illnesses are estimated to occur annually in the civilian California workforce. The direct ($7.04 billion, 34%) plus indirect ($13.62 billion, 66%) costs were estimated to be $20.7 billion. Injuries cost $17.8 billion (86%) and illnesses $2.9 billion (14%). These estimates are likely to be low because: (1) they ignore costs associated with pain and suffering, (2) they ignore home care provided by family members, and (3) the numbers of occupational injuries and illnesses are likely to be undercounted.

CONCLUSION

Occupational injuries and illnesses are a major contributor to the total cost of health care and lost productivity in California. These costs are on a par with those of all cancers combined and only slightly less than the cost of heart disease and stroke in California. Workers' compensation covers less than one-half of the costs of occupational injury and illness.

Measuring adverse selection in managed health care

Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees. We characterize plans' rationing as a "shadow price" on access to various areas of care and show how the profit maximizing shadow price depends on the dispersion in health costs, individuals' forecasts of their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment. These factors are combined in an empirically implementable index that can be used to identify the services that will be most distorted by selection incentives.

Walking the tightrope on Medicare reform

A central controversy in the debate about Medicare is whether the program spends too much money or whether instead it should be expanded to cover more. I consider the value of increased Medicare spending. I argue that on average Medicare spending is worth it: the health gains brought by medicare have been greater than their cost. At the margin, however, services are overused and have low value. Medicare reforms need to promote the high average value of care while eliminating care of low value. Many of the proposed reforms fall short of this goal.

Managing risk selection incentives in health sector reforms

The object of the paper is to review theoretical and empirical contributions to the optimal management of risk selection incentives ('cream skimming') in health sector reforms. The trade-off between efficiency and risk selection is fostered in health sector reforms by the introduction of competitive mechanisms such as price competition or prospective payment systems. The effects of two main forms of competition in health sector reforms are observed when health insurance is mandatory: competition in the market for health insurance, and in the market for health services. Market and government failures contribute to the assessment of the different forms of risk selection employed by insurers and providers, as the effects of selection incentives on efficiency and their proposed remedies to reduce the impact of these perverse incentives. Two European (Netherlands and Spain) and two Latin American (Chile and Colombia) case studies of health sector reforms are examined in order to observe selection incentives, their effects on efficiency and costs in the health system, and regulation policies implemented in each country to mitigate incentives to 'cream skim' good risks.

Economists, policy entrepreneurs, and health care reform

Economists would have formulated several aspects of the health care reform debate differently than policy entrepreneurs did. Economists would have questioned whether health care costs must be contained and whether either competition or global budgets were a "magic bullet" for doing so. They also would have emphasized the distortive costs of subsidies and taxes necessary to reach universal coverage, as well as the shakiness of the arguments about international competitiveness and excess insurance industry profits.